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CORNWELL v. STATE FARM FIRE & CAS. CO.

December 10, 1981

David CORNWELL and Donna Cornwell, husband and wife
v.
STATE FARM FIRE AND CASUALTY COMPANY



The opinion of the court was delivered by: LUONGO

MEMORANDUM

David and Donna Cornwell, the plaintiffs in this diversity action, seek a declaration that the defendant, State Farm Fire and Casualty Company (State Farm), is, by virtue of the homeowners insurance policy issued by it, obligated to defend plaintiffs in a civil action pending in state court. The parties agree that there is an exclusion, clearly and unambiguously stated in the policy, under the terms of which State Farm has no duty to defend the state court action. Nevertheless, the plaintiffs have moved for summary judgment maintaining that under Pennsylvania law, the exclusion is without effect because they were never made aware either of the existence of the exclusion or of its meaning. State Farm disputes plaintiffs' interpretation of Pennsylvania law and has cross-moved for summary judgment. For the reasons to be expressed in this memorandum, I will grant plaintiffs' motion and deny State Farm's.

 The uncontroverted facts of this case are as follows. Sometime in 1975, David Cornwell visited Teddy D. Shafer, a State Farm agent, and, stating that he wanted "complete coverage" on his property, purchased a homeowners insurance policy which provided coverage for various risks, including personal liability. *fn1" This policy was in effect when, on February 9, 1979, plaintiffs' minor son was struck and seriously injured by a motor vehicle while crossing a street near his home. On behalf of their son and in their own right, plaintiffs instituted suit against the operator of the motor vehicle in the Court of Common Pleas for Bucks County, Pennsylvania. The operator, in turn, impleaded plaintiffs in their individual capacity as third-party defendants, charging that the minor son had been injured due to the parents' negligence. Plaintiffs requested State Farm to defend them in the action, and State Farm refused based on the following exclusion in the plaintiffs' policy:

 
1. Coverage L-Personal Liability ... (does) not apply to:
 
....
 
g. bodily injury to you or any insured within the meaning of part (a) or (b) of the definition of insured.

 The referenced definition of "insured" stated:

 
3. "insured" means you and the following residents of your household:
 
a. your relatives;
 
b. any other person under the age of 21 who is in the care of any person named above.

 Plaintiffs responded to State Farm's refusal to defend by commencing the present action.

 Plaintiffs maintain that under the Pennsylvania Superior Court's decision in b Hionis v. Northern Mutual Insurance Co., 230 Pa.Super. 511, 327 A.2d 363 (1974), an insurer may not deny coverage based on an exclusion in the policy unless it establishes that the insured was aware of the exclusion and that its effect was explained to him. From this premise, plaintiffs conclude that they are entitled to summary judgment since State Farm has not denied plaintiffs' averments that they did not learn of the so-called "family exclusion" until State Farm refused to defend the action in state court. State Farm does not dispute the application of Pennsylvania law, but rather disagrees with plaintiffs' interpretation of the Hionis decision and its progeny.

 In Hionis, the plaintiff had negotiated with an agent for one of the defendant insurance companies prior to purchasing fire insurance for improvements he had made to his leasehold. During these negotiations, the plaintiff had "entrusted the entire situation" to the agent, asking only that the policy provide coverage for the considerable improvements he had made to the premises. Id. 327 A.2d at 365. After fire destroyed the premises, defendants refused to pay the full amount of plaintiff's claim because of a liability limitation in the policy. Although the Superior Court expressly found that the language of the liability limitation was "couched in technical and unclear terms," id. at 366, the court's holding that the insurer could not rely on the exclusion was more broadly stated:

 
When a defense is based on an exception or exclusion in a policy, our Supreme Court has held that such a defense is an affirmative one, and the burden is upon the defendant to establish it. Weissman v. Prashker, 405 Pa. 226, 233, 175 A.2d 63 (1961). Even when a policy is written in unambiguous terms, the burden of establishing the applicability of an exclusion or limitation involves proof that the insured was aware of the exclusion or limitation and that the effect thereof was explained to him. See, e.g., Frisch v. State Farm Fire and ...

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